When was the last time you’ve checked your online broker accounts or mutual funds lately?
Once you build an investment portfolio, you’ll need to keep tabs on how it performs. Tracking your investments may seem like a lot of babysitting in some cases, but it all depends on what you own. Owning a lot of individual stocks will probably require you to track their performance and fundamentals quite often — at least around once a week — to make sure that you’re on top of the research behind the companies they represent. If you’re unable to dedicate this kind of effort to stocks, then going for less time-intensive alternatives such as managed mutual funds, index funds or target funds are good options. Despite all this, you’re still responsible for making sure you’re headed towards your goals and that your asset mix is still working out for you.
How To Evaluate Your Investment Portfolio’s Performance
#1 Review your present net worth and particularly, the value of your investment portfolio regularly. This is something you’ll want to try to do periodically. Keep up with your accounts at your discount broker, bank or mutual fund company. I know some finance bloggers who do it on a monthly basis, but every three to six months may be sufficient for your regular net worth check ups. Knowing where you stand is the first step to gauging how well you’re doing overall.
#2 Check how your portfolio is doing against its benchmarks.
With the markets, everything is relative. You’re doing very well if you’re investments are performing at least as well as their respective indexes. Check each of the asset classes that are represented in your portfolio and see how they’re doing against their comparative index and if there are discrepancies, figure out why! Those prospectuses, fund/company stock reports and investment performance reviews that come by your home or online inbox every few months are quite handy because they explain what the deal is with your holdings. For example, if your whole portfolio is primarily invested in US equities, see if it’s doing at least as well as the Total Stock Market Index, which tracks the entire market; or the Wilshire 5000, as represented by their ETFs. If something’s not quite right, you may want to make adjustments. Check the performance of stock market indexes here, or take a look at their corresponding ETFs.
#3 Compare the individual investments in your portfolio against their peers in the same asset class.
Each of your funds or stocks is part of a bigger universe of like investments. I’d suggest comparing how your individual fund or stock is behaving relative to other funds or stocks that are in the same industry or sector. You’ll have to be careful about comparing apples to apples though, but if you note some glaring differences or a pattern of underperformance, it may be time to do some switching.
#4 Ensure that your investments remain on target according to your established goals.
Evaluate how each investment is doing and confirm its place in your overall plan. Since our lives shift and turn with the years, it is also quite possible that our investments may need to be revisited and perhaps adjusted accordingly. An example of this just happened to my family recently when we decided to temporarily function with only one income for the time being. The job loss we experienced and subsequent plans for starting a business have turned us into more conservative investors, relative to how we used to be. We thus put our interest in some aggressive investments on hold while we navigate this new life phase.
#5 Make the necessary updates and tweaks to your portfolio on a regular basis.
If need be, actually take action and do the necessary work to readjust your portfolio. If your portfolio has shifted from its desired allocation, or your life plan has put a monkey wrench on your financial picture, then make the changes. Sometimes, it’s not even your choice to make adjustments as in the case of one of my 401K plan providers forcing a termination of their service. This forces me to roll over my funds to a Rollover IRA, which was what I had wanted to do for a while but didn’t, due to sheer procrastination. Now, I just have to roll up my sleeves and do it.
Next Steps After Evaluating Our Portfolio
Now that’s said and done, it appears that we are due for a portfolio maintenance check up! Already my spouse and I have decided that some changes will need to be made based on some decisions we finally agreed upon recently. Given some goal changes we’ve made, we are now ready to manipulate our funds according to a new asset allocation model.
Given the scope of the changes and some recommendations by friends in the financial advisory business, we have been contemplating the possibility of turning to an investment advisor for additional guidance and professional counseling in this area. This may come as a surprise to many, given that I am a self-proclaimed DIYer when it comes to investments. But without giving away much more info, I will just say that depending on where you are in life and what your goals are, you may decide that working with a professional may actually be much more beneficial! Remember that it’s all about leveraging your time wisely as time IS money. If you’ve chosen to focus on other things that will take you away from doing a good job on your own (even as it pertains to money management and investments), then it may be time to call on other forces to act as another set of eyes to help you achieve loftier goals for your money, net worth and assets.
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{ 10 comments… read them below or add one }
Nice, succinct but useful post on portfolio performance.
I would add a sixth suggestion and it involves measuring portfolio risk. However, I would not use mean-variance or standard deviation since that risk measurement penalizes the portfolio manager for volatility to the upside, something we all desire for our portfolios. Instead, use semi-variance as it only penalizes the portfolio manager when the portfolio does not outperform its benchmark.
Physlab
I enjoy managing my investments too much to have someone else deal with it. But to each his own. If you’ve got a big enough portfolio, it may be a good idea to hand it over to someone else. Could you save more money by doing it yourself? Maybe. Maybe not. The pros may be able to help you save money on costs that you may incur otherwise. It depends on how good the money advisor is.
@John,
There are good reasons to have an investment advisor check out your portfolio. I think there could be value added, provided they are highly experienced. I am also at the point where I’d prefer to focus on other matters and will now simply share responsibility for my portfolio with someone else. It’s not like I’m losing control of it. But wouldn’t you benefit if someone else is evaluating what you have alongside yourself? A lot of people are scared off from doing this due to the whole Madoff mess, but if you’re careful and set up your arrangement properly, you shouldn’t have a problem. The key is to know where to find the right person who can work with you.
I always enjoy your stuff, SVB. Thanks for doing what you do here.
I don’t believe in checking investment performance at all regularly. I think that the time to put the effort in is before you make the investment. Once you do, you need to stick with your choice at least 10 years to know whether it is working or not. It is common for the best stock picks to perform poorly for one or three or five years. Give up on them before they turn around and you never see benefits from your initial good pick.
This is the one truly hard thing about stock investing, in my assessment. We all have short-term orientations. We want to see good feedback re our choices. But there is just no way to transform a long-term game into one that works in the short term. I see changing an investing decision in less than 10 years as akin to changing your batting order because you lost the first three games in a new season. It can take longer than that for the best batting order in the world to click. You just need to wait it out.
Rob
Since you don’t publish your real name, don’t you think your readers would benefit from looking at your financial picture once in a while. Other bloggers like Flexo do it every month and I have been very motivated by following his progress.
@Rob, thanks for the thoughts! Agreed that we should not be meddling with our allocation since it is set based on several factors such as age, life circumstances and risk profile. But I think it’s human nature to want to check investment performance and also make sure that you’ve made proper choices in your portfolio. Not only that, I suggested that we should evaluate where we stand just because I think that people make mistakes. If their initial compass is not working properly (say they make choices based on wrong assumptions or other misjudgments), then their portfolio itself will be problematic. If there’s something wrong with your map then your directions will lead you astray anyway. So a general check is still worth doing, just to see if what you’re doing is in line with your goals. Also, I evaluate things so that I can make proper minor adjustments to the portfolio when it’s called for. Sticking to a rigid allocation and not touching or looking at it may not necessarily be optimal, especially if a few tweaks here and there can optimize your standing. But I agree that you should keep with the core structure of your portfolio and avoid changing things because of emotional reasons.
@Tony, thanks for the suggestion! Yes, some financial bloggers present their information openly. I used to do this in the past, and have a few posts on this, but over time, became less and less anonymous. Friends and family from all over the world have somehow discovered my blog and have been following it… So I have to tread carefully there. So in fact, I am semi-anonymous (as is Flexo), so we’re much more cautious about the info we share. But I’ll take heed of your ideas and see what I can do! 🙂 I appreciate it!
Good advice but not provided in a way that beginners can utilize. How for example do you know when to rebalance your portfolio and what do you do to achieve this goal correctly? What are the steps in this process. Saying make the necessary updates is like providing no advice at all.
@Donny,
I’ve covered the actual ways to rebalance your portfolio based on various schedules, goals and methods. I’ve included the article link in my post above, so I would suggest that you check it out for additional details on how to make this work. Thanks for bringing this up.
Nice check list. I agree with Rob that we should not have a short term orientation. But evaluation and information used correctly is always helpful and should be done regularly. We live in a fast paced world and conditions change so fast an investor must have some flexibility to make prudent changes with a long term horizon.